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Trump wants a payroll tax cut in the next stimulus package. It’s a bad idea.

The White House is pressing for cuts to the Social Security and Medicare payroll tax — but it won’t help the people who need it most and would be a nightmare to administer

Perspective by
Columnist
July 20, 2020 at 9:00 a.m. EDT
President Trump speaks on the South Lawn of the White House on July 16. (Jabin Botsford/The Washington Post)

There are things that make great sense in theory but make no sense in the actual world in which we live. President Trump’s idea of eliminating (or modifying or who-knows-what-ing) the Social Security-Medicare payroll tax as part of an economic stimulus package is a classic example of something that makes no sense in the real world.

In theory, eliminating or reducing payroll taxes is the quickest and cleanest way to stimulate the economy for people who have jobs. Suddenly, those people are taking home more money than they were. That’s why payroll taxes have been cut before to stimulate the economy, and it seems to have worked.

But in our current environment, it makes no sense to cut or eliminate the payroll tax — paid equally by employees and employers — to provide emergency assistance to people in need and boost the economy, which needs all the stimulus it can get.

Let me show you why I say that.

For starters, eliminating the payroll tax — which is levied on employment income — wouldn’t help the tens of millions of people who have lost their jobs since the novel coronavirus upended the economy.

Trump demands payroll tax cut while GOP eyes benefit cuts for unemployed

It’s sort of obvious, if you think about it. If you don’t have a job, you’re not paying payroll tax. So eliminating the payroll tax wouldn’t put any more money in your pocket.

And as a class, recently unemployed people are the ones most in need of a quick financial fix. That’s especially true given the looming July 31 end for some of the benefits they’ve been getting under the Cares Act. Cutting or eliminating the payroll tax wouldn’t help them in any way that I can see.

Even if Congress decides to go along with what Trump proposes, once we get to see what it is, implementing a payroll tax cut more than halfway through the year would be incredibly messy.

Let me explain.

The payroll tax this year consists of 12.4 percent of an employee’s first $137,700 of salary for Social Security, and 2.9 percent of all salary for Medicare. It’s split evenly between employer and employee: 6.2 percent each for Social Security up to $137,700; 1.45 percent each on all salary for Medicare.

If the year were just starting or just about to start, it would be relatively simple for employers to cut back or eliminate the payroll tax to put more money in employees’ pockets. And possibly in their own pockets as well.

But we’re in the second half of July. Which means that employees who’ve managed to keep their jobs have been paying payroll tax for close to eight months. As have their employers.

Are you going to have the Treasury send employees (and possibly employers) refunds of the Social Security and Medicare taxes they’ve paid so far this year? Good luck with making that work.

Are you going to have employers cut checks to current employees and to former employees who’ve lost their jobs this year, and get the Treasury to reimburse employers for the cost? Good luck with that, too.

And finally: The higher your salary, the more you and your employer pay in Social Security and Medicare taxes — and the more benefit you derive from reductions in those taxes. Should we cut taxes for the highly paid as part of an emergency stimulus package to help people in need? I don’t think so.

I don’t know where Trump got his cut-the-payroll-tax idea, but he ought to send it back where it came from. Along with a tweet saying IT’S BEEN VETOED.